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Speaker1: [00:00:07] Hello, everybody. This is Roger Harris of the Federal Tax Updates podcast. If you've listened to our podcast, you know that we can't go one podcast without talking about the employee retention credit. Well, about a week ago, the I think it was the first hearing on Capitol Hill on the employee retention credit was held. And I was fortunate enough to be asked as to present a witness testimony on the employee retention credit. And because it's become such a big part of what we've talked about and what we deal with, we thought it would be good for you to have the opportunity to hear what went on in that hearing. So as a bonus episode of our podcast today, we're going to let you hear the entire hearing that was held at the Ways and Means Committee Oversight Subcommittee about the Employee retention Credit. Hope you enjoy it and hope to see you on another federal Tax Update podcast.
Speaker2: [00:00:57] Ways and Means Oversight Committee is a is ready to begin. All right. Good afternoon and welcome to today's Oversight Subcommittee Hearing. This is a hearing to allow members of the committee to hear from those directly impacted by the challenges associated with the employer retention tax credit Ertc. The hearing will also allow us to hear from those who are helping employers navigate the RTC and and the agencies that process and administer the credit, the Internal Revenue Service. Our beloved IRS, the RTC, is a refundable tax credit, originally enacted as part of the Coronavirus, Coronavirus Aid, Relief and Economic Security Act, the Cares Act in March 2020 for businesses and tax exempt organizations. The RTC was designed to help businesses retain employees during the Covid 19 pandemic. The RTC, however. Can be complex credit to calculate correctly, as there are many rules and regulations that may get difficult for small businesses to figure it out on their own. What's worse is we have already repeatedly heard from stakeholders about the hardship caused by if we change the page processing backlogs, how the IRS has not issued significant guidelines and how the IRS does not provide updated updates to taxpayers about the status of their claims. These challenges create a lot of uncertainty for small businesses. One of the challenges is the backlog of claims that the IRS still needs to process form 941 x, The form by which employers must file their claims is a paper form the employers had to file.
Speaker2: [00:02:57] Many IRGC claims retroactively as a result of processing these claims by the IRS has been shown to create a massive backlog of unprocessed claims. Some employers have been waiting months, if not years, for their credits, still have not actually been processed. This delay has created immense hardship for employers, particularly small businesses who desperately need the help in retaining their employees during the height of the Covid 19 pandemic. To add to the frustration, employers are unable to check the status of their claims. Not only have such delays. Not only have such delays, sorry, didn't like this line. Not only these delays have the purpose of the RTC, but it has added prolonged and confusing continued financial stresses to the employers who do not know when their claims are going to be processed and when. Moreover, insufficient guides Guidelines from the IRS have left employers and taxpayers unsure how to do the right thing by correcting RTC claims that were unintentionally filed inaccurately either way with small simple mistakes or because they were misled as to whether their business is legitimately qualified for the credit. Lastly, RTC scams have floored RTC scams and fraud have been increasing, so much so that the IRS has been warning about these schemes since fall 2020, encouraging businesses to be wary of aggressive RTC marketing. The IRS noted various warning signs for continued consulting firms that may be bad actors, unsolicited ads, calls, emails, texts from unknown persons, statements suggesting that the consultant can determine RTC eligibility and tax refund estimates within minutes.
Speaker2: [00:05:01] Large upfront fee fees to assist in determining the filing of RTC claims and assistance provided under contingency fees that provide the consultant with a percentage of any RTC related tax refund. In March 2023, the IRS added widely circulated promoter claim claims involving RTC to the newly entered its annual Dirty Dozen tax scam list. In addition, some are arguing for extensions for how long employers can claim the RTC. But there is a bottom line. Congress did not intend the RTC to be used by businesses as a line of capital. For years, the Covid 19 pandemic ended. The RTC was meant to help businesses retain employers or employees during the Covid 19 panic pandemic, which is now over. The focus moving forward should be estimating excuse me, the focus moving forward should be to eliminate confusion and clear the backlog of legitimate claims for businesses just trying to get their refunds they deserve. At the same time, we need to combat the increasing amount of scams, frauds and examine ways to improve the process and to prevent similar challenges and hardships in the future. All of these make exploring the RTC worthwhile, and I thank the witnesses for being here today. And with that, I would like to yield over to my friend Mr. Pascual.
Speaker3: [00:06:37] Thank you, Mr. Chairman. It's good. Beautiful day here in Washington. A little sticky, just like yesterday. All right. Thank you. And I'd like to first, Mr. Chairman, recognize and welcome Mrs. Linda. Zippo. President and CEO of the New Jersey Center for Nonprofits. We worked very closely together over many years. I appreciate your testimony. I appreciate you being here today. The employee retention tax credit. Was vital to keeping America's small businesses and nonprofits afloat during the pandemic. This relief was especially crucial in New Jersey. Where the virus struck early. Our state's nonprofits work tirelessly on the front lines of pandemic response and recovery. We all want to ensure the Irtc gets out the door to employers who need it most. But we need to get to the heart of the issue. Resources. Decades of attempts to sabotage and destroy the IRS's ability to serve. Taxpayers and enforce the law. That's what we've got to get to. And I'm committed to get to it. The historic funding enacted by Democrats. Has revitalized the IRS. Get the picture that the other side has pictured given us of the IRS. We got guns at our doors. Give us your money. Why we reduced by 80,000 employees. And we were almost successful in getting more. Americans are finally getting their calls answered by the IRS. That's good news, right? Well. And their refund checks on time. That's either true or false.
Speaker3: [00:09:08] I want to remind people. Every Republican in Congress voted against making tax time easier. Every one of them. Good friends on the other side. But they voted against us. Why would you vote against that? Making taxes easier. To lawfully bring into the Treasury. Like the old saying goes, you get what you pay for. Thanks to the Inflation Reduction Act, this filing season was one of the most successful in years. Believe it or not. Under fresh leadership. The IRS has made enormous progress. Call wait times were slashed to under five minutes may not seem very important. In the heck in this dreadful movements of life. We have day to day. The backlog of returns was finally cleared. Now the IRS is using the same playbook to tackle Irtc claims. In the past two months, we have seen nearly a half a million refunds processed. That's pretty amazing when you've seen what the IRS had to put up with six years prior. And what they were doing with the least amount of resources they had per population. 99% of claims are now less than three months old. Most irtc claims are filed on paper and processed by hand. So the IRS wisely directed IRA funding towards electronic filing and automated processing. Bringing tax administration into the 21st century means quicker refunds, fewer errors. We know bad actors target the Irtc. We know that.
Speaker3: [00:11:24] We can't deny that the record will show it. The IRS is already sinking criminal charges and recovering billions in stolen money. With the backlog cleared. The IRS is redoubling these efforts with additional auditors. Wealthy tax cheats. I've operated with impunity for years under Democratic and Republican administrations. Look at the numbers. How could you conclude anything else? Thanks to the IRA, the IRS is finally able to pursue fair enforcement by collecting what they owe a fair tax system. You've talked about it, Mr. Chairman. I talked myself to sleep about it every day. If we don't have fair tax collections, we do not have enough money in revenue. And then we got to talk about taxing people for what they should not be taxed for. Now, that may be an oversimplification. Check the records. Every dollar spent on enforcement pays for itself and then some. There are some who continue to try and got these efforts. They will not be successful. Some of you on the other side of the aisle. My good friends even risked economic catastrophe to raise funds to audit wealthy tax cheats, for heaven's sakes. It's a fact. Why deny it? Why say that's not as important as. The sabotage risks are progress toward a functional tax system. It undermines the very efforts we're discussing in administering administrating the CRTC. Thank, Mr. Chairman, and I yield back.
Speaker2: [00:13:32] Thank you, Mr. PayCycle. And to the overall committee chairman, Mr. Smith.
Speaker4: [00:13:38] Thank you, Chairman Schweikert and Ranking Member Pascrell for holding this hearing on the Employee retention tax credit and challenges that businesses and tax preparers have faced with this credit. As a government forced businesses to lock down, Washington temporarily helped businesses keep their employees on payroll. That time has passed. Almost a year ago, President Biden went on TV and told Americans that the pandemic is over. Yesterday, IRS Commissioner Werfel said the agency has shifted efforts after successfully clearing the backlog of valid claims. Yet, according to the IRS website, as of July 19th, the agency still has almost a half a million forms left to process. This speaks both to how the Irtc has become plagued by fraud and how the IRS is failing to process legitimate claims in a timely manner. The problem at the IRS were present from the very beginning. For starters, the IRS forced all businesses to apply on paper and mail in the application. That has led to long delays. The IRS told my staff in May that 20% of claims have set unresolved for more than four months. And we have heard from other businesses who say they have been waiting years. For small businesses who filed legitimate claims, this has become a major source of frustration with the IRS. Businesses have found the IRS guidance confusing, particularly the rules about whether they are eligible or not. Some have raised concerns about how guidance has been insufficient and changed, forcing small businesses to spend more time with IRS rules that could be spent serving customers. Just this week, after the Ways and Means Committee announced this hearing, the guidance changed again.
Speaker4: [00:15:52] The guidance changed again this week. I hope this rule will help clarify who is eligible for this credit, but clear guidance should have been published a very long time ago. The lack of clarity and speed from the IRS created an environment where dishonest third party companies took advantage of businesses to either bend the rules or commit outright fraud. Irtc is on the IRS Dirty Dozen list of scams. Americans are bombarded by scammers all day, every day. Text, spam calls, Misleading mailers. Emails to be put on the list speaks to the severity of this issue. We have a system where taxpayers get ripped off by scammers while legitimate claims go unanswered because of a backwards IRS system. We have someone to testify today who has lived this issue day in and day out. Larry Gray is a fellow Missouri grad, a neighbor from back home. I think your farms across the road from me and. He is a CPA who has spent decades helping families and small businesses in south central Missouri navigate the tax code. He himself was the target of an Irtc scam, and he has lost clients to competing accountants because he refused to prepare fraudulent claims. Thank you for coming to Washington to share your experience with this program. I want to thank all of our witnesses for sharing your ideas and perspectives to root out fraud and ensure Washington is helping those who deserve it. I yield back, Mr. Chairman.
Speaker2: [00:17:45] Thank you, Mr. Chairman. A quick introduction. We're going to do the short versions for everyone. Mr. Larry Craig is a partner at AGC, a CPA firm in Missouri, and has been a government liaison for the National Association of Tax Professionals. Mr. Roger Harris is the president of Padget Associates Advisors. Sorry about that. And Pat clearly is the President and CEO of the National Association of Professional Employer Organizations. And Ms.. Linda Zeppo is the president and CEO of the New Jersey Center for Nonprofits. Thank you for joining us today. Your written statements will become part of the record. I'm going to apologize to you. Now, as you know, today is a bit of a chaotic day with multiple votes. So we're going to just we're going to go through it somewhere during this. We're going to probably have a vote. You may see some of us moving back and forth. It is the chaos of the process. Mr. Gray, please share with us your five minutes.
Speaker5: [00:18:54] That's the first time I've talked and not heard. No. Again, thank you, Chair. Ranking Member. Neighbor and members of the House Committee on Ways and Means Subcommittee on Oversight. I appreciate this opportunity. You've already done the introduction, but I think some notes should be noted. For example, yesterday I spoke at the IRS tax forums in Atlanta on on tax law. I've been doing this now over 45 years. But during that time period, one of the things I think is important is that I have participated in the tax system throughout the years. Starting in the late 80s. Until last year, I served on different volunteer advisory boards to the IRS. I believe in the tax system. And I think what's so important here today, and I've kind of got an introduction to the rest of the panel and I think the unusual thing you might be surprised how we're all on the same page. So I'm not going to read my testimony. But what I want to focus on is small business and small accounting firms with me teaching nationwide when the pandemic happened. I was like everybody else. I couldn't go anywhere. So I started doing YouTubes. I'm old fashioned, so but I learned something different. And the very first thing that I did three and a half years ago was a Form 7200. That was a way to get a credit for your employer as an employer before you actually had to wait to do the quarterly return. That was a good idea.
Speaker5: [00:20:42] But what happened was when I got done, I literally said to the IRS, I can't believe the fraud that's going to happen. See, it's been known. And so then what happens is that whenever you have a $5,000 a year credit, that's not going to make a big difference to the fraud. But when that becomes $7,000 and then we got to look back that you can qualify for IRC and PGP, the paycheck protection, both as long as you don't double dip in wages. That's whenever it started. So I serve on the National Public Liaison monthly meetings, the IRS. I've got a lot of good friends over there. And I'll say this. Three years ago. They were understaffed and they were underfunded. So with that, what I look at is that I had no guidance. I went to the IRS site. There was no guidance when this all started. It takes some time, you know, to get through counsel and all that. So I go on the Internet and so I wanted to see what other people were doing. So all of a sudden, you know, Google then I started to realize and these people aren't explaining the law correctly. So I took a couple of my companies, small companies that I knew did not qualify. And so I started shopping the IRC mills because I'm teaching YouTubes. I should understand the experience from the real world. And so with that, what would happen is, is that when I would look at the advertising, your CPA, your your E, your tax person doesn't know what they're doing.
Speaker5: [00:22:24] But yet when I look at some of the contracts, here's one Klein acknowledges and attests that it is eligible. Here's another one. The client acknowledges they are qualifying business entity. Sounds to me like I'm paying 15 to 30% of that up to $26,000. For somebody to do clerical assistance. Because what happens in it, they also say in those agreements they don't do audit. They also say in those agreements, maybe they'll help you find somebody for the. I got a feeling they won't be there. And here's what's sad. Anybody can put a number on a form and see. You don't have to put a reason why. There's two ways to qualify. Do you have to do a reason why? But in that, I want to hopefully see an aggressive, open Q&A when we get to it. But in conclusion, going forward, we need to coordinate efforts by starting at the top. Appointing. A chief counsel permanent has been vacant for, I understand, some years. Well, that's where I, as a practitioner and the community, the taxpayer looks at for guidance. We were getting no guidance. There should have been an IRC implementation team to coordinate from the top down. We need education, we need guidance. The frequently asked questions are out of date. They say they're historical. So my time is about and I hope in questions I get the normal what you're ask. Thank you.
Speaker2: [00:24:02] Thank you, Mr. Gray. Mr. Harris.
Speaker1: [00:24:07] Chairman Schweikert and Ranking Member Pascrell and members of the Oversight Committee. Thank you for having us here today. My name is Roger Harris of Paget Business Services. We are an accounting and tax firm that has been in business almost 60 years, serving small businesses across the country. And we currently have a network of over 200, around 200 offices. And this hearing couldn't come at a better time because the Employment Employee Retention credit is, while it was a great opportunity and a much needed lifeline to small businesses, it is fraught with fraud. As we sit here today and it is putting a challenge on all of us in the profession. I think, however, we have to recognize that because of the pandemic, we did things quickly and we did things maybe in a way that we wouldn't have done in normal times. And I hope that we can learn from these experiences and not repeat these mistakes. In my written testimony, there are some details, but I want to talk about four main areas and many of which have already been mentioned. The beginning and the first problem was how we submitted claims to the IRS. There was no question that sending paper into buildings with paper already there and employees not working in them, that we were going to have a problem processing the claims which led to the second large problem that we face today. And it's still ongoing, which is the delay in getting the money out to the people who need it.
Speaker1: [00:25:37] Any time you send paper to the IRS, things are going to take much longer. We're in the beginning stages of a second problem that I think has not gotten the attention it deserves yet is the law is written in such a way that it's going to require all of the businesses who receive a employee retention credit to amend tax returns. This could be tax returns from 2020, tax returns from 2021. And if there are an S corporation or a partnership, it would also require all of the partners and shareholders to also amend their returns. So there could be millions of returns coming in for which penalties and interest will most likely be charged because it will be producing additional tax. So we're going to further stretch the IRS resources for these small businesses to comply with their further obligation as the law requires. And it's going to cost small business money that I think we need to look and we have talked about an alternate way to solve that problem, but that's starting and it's going to continue to get worse as time goes on and more people receive their funds. The other thing that we're dealing with today, and you've heard it talked about by every speaker up to now, is the fraud that's in the system. Any time this amount of money is being handed out through the tax system, the bad actors show up and they have shown up in large numbers, very sophisticated.
Speaker1: [00:27:06] I don't think any of us can turn on a TV or a radio without hearing an ad from these folks. And it is stretching the relationship between their preparer and the mills, as we call them, because as Larry has mentioned, we have had clients that we have dealt with for many years who have trusted our advice. But all of a sudden, when someone is telling them your advisor doesn't know what they're doing, and if you will listen to me, I can give you a half million dollars. It's very hard for us as the people who are working with these small businesses to win that argument. In many instances, because of the sheer amount of money that is being dangled in front of them. And as we have heard, the IRS has no choice but to begin enforcement actions to try to correct this. And one of the Larry mentioned and Larry and I go a long way back, so we're going to talk a lot about the same things, is that we need help on how to deal with these businesses that come to us, who took this money and weren't entitled to it. And we are asking the IRS for some help of a real world solution to give us the ability to try to bring these people back in compliance, because there's no way in the world we're going to audit our way out of this problem. It's going to take a concerted effort by our industry, the practitioner community, to help solve this problem, because we're the people that are coming to today when they get the money.
Speaker1: [00:28:37] And we actually can't even amend the returns unless we believe the claim is correct. So our only alternative is to say, well, we can make you give the money back. But remember, they didn't get all the money. They paid huge fees. So we need some real world solutions to help our people do what you want us to do, which is to bring the small business owner back into compliance because the IRS is not doesn't have the capability to do it. In wrapping up, I do want to say one. Thing to credit the current commissioner. As Larry mentioned, he and I were both in Atlanta at this IRS forum and the commissioner was scheduled to speak, which he did, but unannounced. He asked for a meeting with some of the practitioners that were there that worked in the Irtc world and ask us what did they need? What did he need to do for us? What did we need from him? So at least the dialog has started and let's hope that it continues and I know my time is up, so I am going to refer you again for details of my comments in the written testimony. Thank you for having this hearing. Thank you for inviting us and I look forward to your questions.
Speaker2: [00:29:46] Thank you. Mr.. Mr..
Speaker6: [00:29:49] Thank you. Thank you, Chairman Schweiker, Ranking Member Pascrell, members of the subcommittee. Mr. Pascrell. I'll begin with a personal observation. I began this life at Saint Joseph's Hospital in Paterson, New Jersey. So we both found our way down here to Washington eventually won't. That's exactly right. Exactly. I'm Pat Cleary. I'm president and CEO of the National Association of Professional Employer Organizations. We represent approximately 250 peos that provide payroll benefits, risk management, regulatory compliance assistance and other HR services to more than 173,000 small and mid-sized businesses employing over 4 million people. Our members account for more than 90% of the industry's 273 billion in revenue, Almost 15% of businesses with between 10 and 99 employees partner with the PEO. I'm glad to be here today representing small and mid-sized businesses or SMBs as they're called, especially the hundreds of thousands who are waiting for their irtc funds. Peos are champions for their small business clients and their employees by providing payroll benefits and HR services and assisting with compliance issues under state and federal law. Peos allow small businesses to improve productivity and profitability and to focus on their core mission and to grow. Companies that use a PTO grow faster, have more engaged employees, have lower turnover, and twice the survival rate of companies that don't. Among the many services provided by a PEO is guiding small businesses through the process of applying for the Irtc.
Speaker6: [00:31:25] That's why we're here today. Also through a PEO, the employees of small business gained access to Fortune 500 employee benefits such as health care, dental and vision care, life insurance, retirement savings plans, job counseling, et cetera. That they wouldn't normally get as employees of a small company. Above all, though, I think what we're most proud of is an industry is in the in the dark days of the Covid pandemic, Peos ensured that their clients stayed afloat by securing PPE loans and later loan forgiveness, managing employee leave, applying for available available tax credits and allowing the businesses to focus on managing on remaining viable and staying alive. In fact, businesses that use the PEO during the pandemic were 60% less likely to have permanently closed than those that did not use a use a during the pandemic and they received PPE loans and loan forgiveness at nearly twice twice the rate of businesses that didn't use a peo. In short, peos helped tens of thousands of businesses survive the pandemic. And again, we're proud of that. So now we've got this new challenge. We've been sounding the alarm about this huge backlog of unprocessed irtc claims for more than a year. We engaged when the backlog was around 200,000. We watched it grow to more than a million. It currently stands at 488,000, having grown again in the past month.
Speaker6: [00:32:43] In short, it's moving in the wrong direction. And don't think of these as mere numbers. These are businesses. These are people. And the problem is much bigger than the numbers indicate. A lot of claims are filed on an aggregate basis like ours. So it means multiple small business claims are filed together on the same form. The IRS counts these as one case when there could be hundreds or thousands of businesses on that form, all stuck in the backlog and waiting for these critical funds. For example, a PEO with 10,000 unprocessed claims is counted as one by the IRS. A recent survey of only 43 of our 250 member peos revealed that 18,000 small business clients are still waiting for the IRS to approve almost $3 billion worth of claims for Irtc credits that were filed before 2023. Almost 4000 of these claims date back to 2020. This is completely unacceptable. Yesterday, the Mr. Smith referred to this. The IRS commissioner said the backlog had been eliminated, adding that 99% of remaining claims are three months old. It's simply not true. As a as of a week ago, July 19th, the IRS website said that the backlog was 488,000. Give that some context. Most, I'd say most many states don't have 488,000 small businesses. I know a big focus of today's hearing is on fraud. I don't know how many allies the IRS has had in its fight against fraud, but I can tell you we've had a good relationship with the IRS.
Speaker6: [00:34:19] We have stood shoulder to shoulder with them on this issue to prevent fraud in this program, repeatedly warning our members and giving them materials to help them warn their clients about so called Irtc Mills, which proliferated as the processing delays at the IRS continued in the backlog grew. But make no mistake, this backlog has been the single business biggest business development engine for the fraudsters and the mills. Had there not been a backlog, there would be no Irtc Mills preying on small business. Chairman Smith noted that they've created this environment for this for these these mills to exist. And that's true. These companies are desperate for the money they are promised. It's funny, as we were preparing to come down here, I made the mistake of picking up a call from a number you don't recognize. And it was some cheery person, Heather, calling to say, Hey, have you gotten your irtc money yet? And I said, No, it's funny, you should call. I'm on my way to Capitol Hill to testify in a hearing that's going to put your you people out of business. That's the thing. So crickets. There was dead silence on the phone. So I think she she didn't know what to do it.
Speaker2: [00:35:28] And, you know, there are always named Heather.
Speaker6: [00:35:30] Heather Heather it's why is that another hearing on that I think for this committee would be really important. Anyway, so the IRS were trying to triage this problem. I would tackle the peo. Claims first. Peos should inspire a higher degree of trust and confidence because we've got ongoing relationships with our established established businesses that we work with and they specialize in we specialize in compliance assistance. Compliance is what peos do. The IRS could pull out those claims today and process them with a high degree of certainty about their validity. In fact, the commissioner's lengthy statement in his lengthy statement yesterday, he identified the key indicators of fraud, like what to look out for. None of them. And we may.
Speaker2: [00:36:10] Have to come back to those.
Speaker6: [00:36:11] Yeah, and none of them apply to us, as it turns out. So we know firsthand the hardship that the RTC backlog is causing for small businesses across the country, because we hear from them every day. Every day. Peos have long standing relationships with many of their clients and have become invested in their success. We've cataloged most of these stories on IRC delays hurt small businesses and.
Speaker2: [00:36:35] With that we're going to have to because we're way over time.
Speaker6: [00:36:37] Thanks. Thanks. Thank you. We'll take questions later. Thank you.
Speaker7: [00:36:44] Good afternoon, Mr. Chairman. Ranking Member Pascrell, members of the committee, thank you for the opportunity to be here today. Again, my name is Linda. Zippo. I'm president and CEO of the New Jersey Center for Nonprofits. We are a statewide network champion and service organization for the charitable nonprofit community in New Jersey. We are ourselves a 500 and 1C3 public charity, and we are part of the National Council of Nonprofits Network. Our message is essentially the same as what you've heard. We're all here for the same reasons. We want to reduce confusion. We want to combat fraud. We want to eliminate the backlog. I do want to underscore some points when pertaining specifically to the charitable community, because it's hard to you can't overstate the essential role that charitable nonprofits have played in Covid 19 pandemic response and recovery. But it's also hard to overstate how important the Irtc has been for the ability of nonprofits to continue serving our communities. Because even before the pandemic, nonprofits were challenged by steadily rising demand with resources that were not keeping pace. And the prolonged health and economic crises spurred by the pandemic exacerbated this to an unthinkable degree. Stretching organizations to the breaking point when your constituents were turning to them in record numbers. We know that in this context, programs like the PGP, like the Irtc, have been absolutely critical for nonprofits to continue to serve people and communities that need them. We know that participation in the Irtc is very high.
Speaker7: [00:38:20] We actually, our organization ourselves received an irtc credit. Our process was comparatively smooth. We filed electronically with the help of our accounting firm and payroll company. But we know that that's not the experience that every nonprofit had. One of the issues is, of course, complexity. I first, though, want to thank Congress for structuring the Irtc as a payroll tax credit to allow nonprofits to the opportunity to participate. But the sheer complexity, repeated changes to guidance and in some cases guidance that didn't necessarily apply readily to nonprofits created or exacerbated the confusion during 2020 and 2021. The criteria or guidelines guidance changed no fewer than four times. And think about this. This is in a climate where nonprofits are trying to work to save lives in the community. They're trying to grapple with frontline people, unprecedented demand for their services. And in this kind of climate, trying to juggle meeting demand and trying to navigate these these requirements was extremely difficult. They didn't have the human capacity or resources to be able to try to figure this out at the same time. So what this meant was, of course, widespread confusion and in some cases missed opportunities for relief for every organization like ours that received a irtc. There are hundreds or perhaps thousands of others that were not aware of what the requirements were or unable to take advantage of them because the process was perhaps too burdensome. We too, like everybody at the table, along with our network and counterpart associations, have tried to work to educate the community about the program, encourage eligible eligible organizations to look into it, but also to be wary of fraud.
Speaker7: [00:40:18] We ourselves had the experience of an unscrupulous provider contacting our members, saying they were working with us when it just wasn't true. So we understand firsthand. And what this underscores is the need for ongoing communications education from trusted resources in and outside of the government to ensure the program reaches employers as Congress intended. So just a few recommendations. And again, we have a more detailed statement. I'm happy to entertain questions. Ensure that from the outset, relief programs are structured to ensure equitable access for charitable nonprofits. That means payroll tax credits. That structure was critically important, but also making sure that rural, grassroots and organizations that address historically marginalized communities can participate. Simplify the eligibility process and application process at the outset so that smaller entities can participate, provide ample opportunity and resources for education, resources, education, training and application assistance. Because, again, in the charitable nonprofit community, organizations are immersed in service delivery and dealing with the crisis at hand, which doesn't leave a lot of time to analyze and navigate complicated systems. And of course, to the greatest extent possible, put safeguards in place to protect against predators and scam artists. So again, we thank. The committee for the chance to be heard today. We stand ready to work with you on this important issue. Thank you, Mr. Zippo.
Speaker2: [00:41:49] And you're going to see us we're doing going to do some juggling because we're going to also have a vote series. Always remember you're on lots of televisions all over the campus. It's just the nature. So. And I was going to have Mr. Stubby go first.
Speaker8: [00:42:01] Thank you, Mr. Chairman. My questions are for Mr. Harris. Numerous employers have come forward with their stories about months and even year long delays in processing their employee retention tax credits. In some cases, it's millions of dollars of these credits claimed by employers. How has the complexity of Irtc returns contributed to the backlog that employers are experiencing today?
Speaker1: [00:42:24] Well, I think there's been a lot of factors that have contributed to it. I think we start with the way that we initially asked for the credit, which was just the filing and paper. I think that's the biggest contributor. Complexity has been a problem in many instances, particularly with the retroactive and coordination with PGP loans. So those of us that have tried to do things correctly, it was a complex calculation and it took some time. I can't speak to how some of the mills dealt with this because I think they sometimes found shortcuts that we couldn't find. But I think the the real issue started with the fact that we knew a lot of the problems in this program were predictable. They were things that we could see coming any time you ask paper to be sent and as I said in my opening statement into a building with nobody working and already paper back up delays shouldn't have been a surprise. But complexity is a problem in all of the tax code, not just this.
Speaker8: [00:43:23] In your testimony notes, there were suggestions were given to the IRS to improve the Irtc processing. Can you elaborate on what those suggestions were and whether the IRS is implementing those suggestions?
Speaker1: [00:43:35] We made a couple of suggestions and others did that. Number one, recognizing the fact that these were going to be sent in to Bill, we had to do paper that there should be dedicated post office boxes, identifications, some way of prioritizing these claims above the normal workload, because again, we were in the middle of a pandemic. These were funds to provide lifelines to small businesses, and yet they just fell in. So we did not see any of the suggestions that we made taken. I know others had different things, allowing them to be claimed on a current year process return that could be filed electronically. So I think we just fell back into the way it was always done and in that case we had great delays.
Speaker8: [00:44:20] Do you have any other suggestions that would avoid some of the backlogs that we've seen in the future?
Speaker1: [00:44:27] Well, I think I think generally speaking and again, if we have the time and we're not in a pandemic, we should always look for ways not to. Today, what we're doing is solving a problem. I would like to find ways with the IRS to prevent the problem. And I think one of the ways to do that is look for alternative ways, take advantage of electronic filing, take advantage of things that are currently being done, and be creative in terms of just being. This is the way we always did it.
Speaker5: [00:44:56] If I might say something also to that, I mentioned the 7200 and it came out and I saw it was very fraudulent. It was a fax number in and that case, the IRS did step up to the plate on it. But I think the other thing, the form being filed with just a number on it, see, there's two there's a start up business. But the main way to do this, there's two ways to do it. If they would have at least put a code on there and said one is based on gross receipts, they already have that information on the income tax return we're all the fraudsters have come from. It's not from the not from the gross receipts test and deficiency, which was the company's hurting most. If that had to pipelines just that in of itself would have moved the the companies with the biggest losses. Because there was no decision on that other than a calculation. And the audit part was just to verify with the income tax return. So all that got thrown in with the other. And then when the offer mills come along. But the most important thing, if they just put it to at least two codes, the the again, the company losing the most money would have been the first taken care of, which to me was very important.
Speaker8: [00:46:08] Well, that kind of leads me to my next question was how has the fraud and the scams impacted the backlog that employers are facing today?
Speaker5: [00:46:15] I think I guess I was directed toward me. I think the big issue is the fact that you're getting all these quarters with a number changed and no reason why. So how do you audit something? And so what happens? You know, the demand and as I said in my printed statement, the reason why we're all here today is to get the right money to the right qualified employer, and we all want it to them faster. So I think the other thing would be is that Roger and I attend monthly meetings here in DC. Three years ago I seen the problem coming. But I think what happened was, is when you're pulling off thousands of people in compliance over to take care of the IP and the 1040 rebates and credits, then you've got a shortage of staff and these papers are piling up. You know, it's amazing. For example, 1040 X and I believe 941 x also, even if you do that electronically, no, it's a 941 x you do an amended return and you think you're e-filing it they actually print it out and scan it in. No. So and the other thing I want to say and follow what Roger said in my comments was. We do have a new commissioner and I think over the last few weeks, they're starting to listen.
Speaker8: [00:47:42] My time is expired. Thank you guys for being here today. I appreciate.
Speaker2: [00:47:44] It. Thank you. Mr.. To be Ranking member.
Speaker3: [00:47:47] Pascrell Yes. Updated all the numbers. And we've heard thrown around here today. There is a summary for that report as well. It's a four pager. In that summary and in the report itself. The IRS is telling us that this problem started in the late 19 2019 and was seen throughout 2020. And they realized they had to do it. I would agree with Mr. Gray that Mr. Werfel is the guy right now. I think he knows what he's doing. He will not jump just to make us happy that things are happening. Because we want it not only to be a solution. One of you said this We want it to sustain itself. And try to reduce the amount of hesitancy that exists right now so people the consumer. Doesn't have to wait so long. Ms.. Zippel, you stated that two thirds of the respondents to a survey reported receiving Covid relief from the government. That's a lot of people. What type of education and outreach services did your organization conduct to make nonprofits aware of the RTC? Be as brief as possible? I got a number of questions.
Speaker7: [00:49:31] Yeah, we did, along with our counterpart associations, workshops, webinars, recorded videos, emails, social media to try to reach our members, our network in New Jersey of 5000 plus and of course, the reach of our counterparts across the country is very broad. We wanted to make sure that organizations were aware of these the programs, the changing requirements. Also, quite frankly, the warnings against not falling for the scams. But we wanted to make sure and we still do this to this day. We still hear from members that don't know that nonprofits are eligible for this program, so that education is ongoing. And we know that we reached a lot of organizations that might not have otherwise known about this.
Speaker3: [00:50:20] I agree with that. You discussed the need for more education and clearer processes to help nonprofits navigate the irtc. How can education and streamlining the application critical to what we're talking about here help cut down on the scams targeting vulnerable organizations?
Speaker7: [00:50:44] That's really a key, key point because I think one of the biggest roots of the proliferation of the scam artists was the complexity of the program. You've got organizations, as we talked about, on the front lines, trying to meet unprecedented demand for their services, but they also are dealing with lost revenue, canceled programs and the like. And so you get somebody coming into your door, you're going to try to listen to them because this is not what you're specializing in. The simpler we can make this, the easier it is for organizations to deal with. That's part of the reason why time extra time to apply also matters because organizations have to analyze their systems and whatnot. And making that choice between am I going to serve the person who's at my door today or am I going to be able to stop and look at this morass of guidelines that may change. Next week is really, really hard choice to put on a nonprofit.
Speaker3: [00:51:40] What did your organization experience when claiming and receiving the irtc and what type of information did your organization need to gather and provide to your accountant? That's that's a tricky thing here we're talking about.
Speaker7: [00:51:58] It is. And there's a reason we didn't apply right away either, because we also we're a small office and we had to figure out if we might be eligible and we had to work with our accountant and provide payroll records and provide our financial records so they could analyze, help us analyze whether our gross receipts had gone down enough. And of course, the moving target of the definition of gross receipts also was a problem for the charitable community. And then look at our payroll records. So it's a multi step process and that's part of the reason we were also trying. We were in emergency mode as well. And so trying to navigate that was a little bit challenging. And we had our process was a little smoother than some, but it definitely took some time and there were a lot of steps.
Speaker3: [00:52:41] My final question, quickly, what lessons should Congress take away? From the Irtc implementation that can guide the design of future tax relief programs for nonprofits.
Speaker7: [00:52:55] The biggest message is the fact that this was structured as a payroll tax credit, which allowed nonprofits to participate. That was the huge, huge win for nonprofits. It really was a lifeline. And any future programs, if they can be structured that way, that will make a huge difference for the community.
Speaker3: [00:53:15] I know the question will lead you to about a two hour answer, but is a complicated process. But thank you for your testimony. Thank you for all your testimony. You have helped beyond what you even think.
Speaker2: [00:53:27] Thank you, Mr. Cresswell. And if you're going to go vote, we'll say nice things about you when you're gone. Ms.. Ms.. Denny.
Speaker9: [00:53:35] Thank you, Mr. Chairman. Just thank you for holding this and thank you to the witnesses. We appreciate your testimony today. And I thought maybe I could follow up on Mr. Pascrell's question, maybe with Mr. Cleary. And what do you believe we're just talking about? How would we do? How would we have made this program better? And do you believe that the way that the IRS calculated this program and as a payroll tax credit, is that something that you thought was an error could have been fixed? Just quickly, because I'm just curious about your response to that.
Speaker6: [00:54:05] I don't know. And the you know, the tax experts here would be in a better position to answer. What I do know is when they did a surge and put a bunch of people on the case, the backlog came down that that's easy. So whatever else was happening inside the you know, the the bubble, for us, it was just a matter of of of applying resources to the problem and trying to drive the backlog down, because that's really our big problem. Any time you got 500,000 cases, you know, and we've got thousands and thousands and thousands of cases in that subset, you know, that are held up and people are waiting.
Speaker9: [00:54:42] Well, let me ask you, while we're on the backlog, do you think that the way the IRS calculates the number of unprocessed employee retention, tax credits claims is accurate? Is it accurate, the way they're processing it, in your opinion?
Speaker6: [00:54:55] Well, no, because as I mentioned in my statement, you know, for peos, that could have small peo may have 100 claims with the IRS, a large peos may have tens of thousands of claims each peos counted as one. So we've got 250 members. That's 250 claims that the IRS counts when it could be tens or yeah, it could be tens or hundreds of thousands of cases. Yeah.
Speaker9: [00:55:22] So let me so, Mr. Keller, I'll stick with you for a minute. The IRS claims to have doubled the amount of employee retention tax credit claims that they process every week from processing 20,000 claims per week during the filing season, down to 40,000 claims per week. So just yesterday, the IRS issued a press release where Commissioner Werfel stated that the IRS has successfully cleared the backlog of valid irtc claims. They even said it was 99% done. So from your experience and you just indicated this, does it seem like the Irtc backlog has been cleared?
Speaker6: [00:55:57] No. And in fact, their own website a week ago said that it was almost 500,000in the backlog. So they clearly they didn't clear that out in a week. So that's the first problem that we're seeing occur with this. And you see again in the last week that it ticked back up by another few hundred thousand. So it's almost at half a million. So whatever the problem is, there's there's there's something out of whack with the count. And, you know, and I agree we we wish the commissioner well. As I said, we've had a really good relationship with the IRS. But for his credibility, I think first shot out of the box. He needs to be credible and truthful in terms of of describing what the what the backlog is.
Speaker9: [00:56:39] Well, we thank you for that, because the exact number is actually 488,000 right here. So we know that there's a huge backlog. So to claim that somehow these are done and we appreciate what you do as pose as a small business owner, we're dependent on PBS and the great services they provide and helping us get through some of the confusion and difficulty in dealing with the IRS. And we understand the bureaucracy. We know it's difficult. But, you know, these are this is real money. You know, we have low margins and small businesses and we we appreciate that what you do and we appreciate that you're on top of this. And when I you know, when I've met with so many small business owners, the first thing that everyone says is the 941 form. Ah, you know, I just hear here and it is a problem and the IRS needs to solve it. And we appreciate the work you do to advocate for people who are in this position, especially the small business owners that don't have the resources and the compliance teams and the lawyers and accountants to really make it happen. So we have work to do and the IRS needs to clarify this. And it would be nice if the commissioner would come out and admit that we have almost a half a half a million claims that are still out there with businesses, you know, struggling to get this right and struggling to comply with the law. That's right. So we appreciate all the witnesses. I think we've got a round of of votes. But thanks so much. And thank you to all of you again for your expertise and also for being willing to come here. And as Mr. Schweikert said, to be on national TV or have everybody in the Hill watching. You guys, thanks so much. Thanks.
Speaker10: [00:58:01] Chair now recognizes the gentle lady from California, Ms.. Chu, for five minutes.
Speaker11: [00:58:08] Ms.. Zeppo, I want to thank you for your testimony and I appreciate that you recognize that this credit was absolutely vital for many of the nonprofits and businesses who claimed it. Congress created the IRC on a bipartisan basis and the Cares Act. We asked the IRS to stand up a new refundable credit at the same time that the agency was working remotely because of the pandemic and sending economic impact payments to every taxpayer. The credit nevertheless provided absolutely critical support for establishments that were closed down or restricted by government orders to protect public health. And because of that and the other pandemic aid programs like the Paycheck Protection Program, our economy bounced back faster and stronger than any of our peers. But I recognize that the IRC has faced immense challenges and has been a burden so far to too many entities that it should have instead of helping them. And one of the lessons is that the IRS simply did not have the resources to properly administer this credit. They could not accept electronic forms. They did not have enough employees. Their systems were outdated and overburdened. That's exactly why Democrats passed the Inflation Reduction Act and reversed over a decade of Republican cuts to the agency. And the results are clear. The IRS just yesterday reported that they were able to add new staff to address the surge of filings and clear the the background of old claims, giving them the ability to focus on new claims and fraud mitigation. So, Mr. Hippo, can you talk about whether the increased resources for the IRS provided by the Inflation Reduction Act are helping nonprofits and businesses to get the help they need from the agency? And whether you believe that cutting these funds for the agency would hurt taxpayers and hinder their ability to smoothly claim IRC and other credits.
Speaker7: [01:00:00] What I would say is yes, certainly the backlog we were dealing with unprecedented crises, certainly with the pandemic. That's the understatement. And more IRS resources means more ability to process applications, to provide guidance to answer questions. The we certainly recognize that the changes in the guidance were the result of efforts to try to swiftly address an unprecedented crisis. So having more hands on deck, if you will, certainly makes that process. The odds of that process going more smoothly certainly increases that quite a bit. So extra resources at the IRS, we think is a certainly a very strong and an important aspect of making the program run smoothly. Now and in the future.
Speaker11: [01:00:58] And let me address a specific issue, which is that is that the businesses are required to form a file, a 941 form with the IRS on paper rather than electronically. Fortunately, the IRS has said that they expect form 941 X to be eligible for electronic filing starting next year. It's a common sense improvement made possible by the resources that Democrats provided to the IRS under the Inflation Reduction Act. So could you talk about how electronic filing will help nonprofits and businesses claim the Irtc and make other amendments to their quarterly taxes moving forward?
Speaker7: [01:01:38] Certainly electronic filing speeds up the process exponentially, and we were actually able to file electronically. I was not aware of the the point made that the IRS prints out the forms, but we filed our form electronically. Our process went smoothly. We had our credit back within eight weeks. So we've seen firsthand that it can work very well. And I think the more the process can be streamlined and remedies like electronic filing, clearer guidelines, more consistent guidelines from the outset, making sure that things are simple so that as many organizations, eligible organizations can take advantage of this as possible. That's all really, really important.
Speaker11: [01:02:22] And I heard from all of you about the unscrupulous vendors who've targeted the small businesses. You also so eloquently talked about that, and it pressured them to apply for tax credits that they may not qualify for just so that they could collect this commission. I heard from CPAs that this problem is pervasive, and unlike the types of fraud we saw with other pandemic programs, oftentimes the applicants making the improper request for aid are doing so with no ill intent, but simply because they were misled. And I heard that the IRS is distributing information to make sure that we do not have these fraudulent claims and that we can identify them earlier. And I certainly hope that that can help in this process. And I yield back.
Speaker10: [01:03:11] And the chair recognizes herself. We have many roles here in Congress and one that stands out the most important is providing constituent services and helping them weed through the never ending bureaucratic tape. But at the top of that list is the IRS. Nobody likes paying taxes, which is really made more painful when the IRS does not do its job. And that's what we're here looking at today. Congress enacted the RTC at the beginning of the pandemic to provide rapid tax relief to eligible employees, employers who kept employees on the payroll despite being harmed by the pandemic. The outdated IRS process that employers must use to claim the Irtc has not worked well and has contributed to the backlog of an unprecedented, unprocessed returns that resulted in many employers waiting two or more years, as we've heard today, for their claims to be processed. And despite the fact that the IRS is making it difficult for legitimate claimants to receive their tax funds and tax returns, the IRS is doing a very poor job of preventing fraud. And as of April 20th, IRS criminal investigations initiated 122 investigations involving over $1.2 billion of potentially fraudulent irtc claims for tax years 2020 to 2022, 2022. Mr. McCleary You've got your. Heather. I've got my Deb. Oh, is she going to play? Oh, come on.
Speaker12: [01:04:42] When you get this message, can you. Call me back at (218) 318-5208. This is about an additional tax refund for your business for the year 2020 and 2021. You're actually scheduled to receive about $26,000 for every W-2 employee you have who.
Speaker10: [01:05:02] Wouldn't call back on this.
Speaker12: [01:05:03] That alone doesn't need to get paid back.
Speaker10: [01:05:06] Her name is Deb. I didn't have a Heather. I have a Deb, But it is amazing. It is amazing to me how many of these calls I've gotten. By the way, I call back. You answered your phone. I called back today or I've called back and they still keep me on the list and I tell them who I am. And yes, while I may have employees, I guarantee you I'm not eligible and they still keep me on that list. So we have learned that these Ertc mills have been approaching businesses and telling them that they qualify for the ertc even though some of these businesses were already told by their tax preparers that they don't qualify for the credit. So how prevalent do you find this issue? If I'm getting calls and you're getting calls just this morning, and do you think it's led to an increase in improper ertc claims?
Speaker6: [01:05:55] 100%. And you know, to your question, like who on earth would call these people back? The answer is simple, desperate businesses, right? And so on our website, you know, your RTC delays hurt small biz. There are just scores and scores and scores of first person accounts of people who've closed their business, moved their manufacturing operations, shut it down, you know, refinanced their their homes, gave up their pensions, everything for this. They're desperate. Right. And that's why I said this. The easiest way to clear out the the get rid of the mills is clear out the backlog, that people are desperate for the money. They need it to stay alive. And so if I'm going to wait and I don't know how long because there's no way to find out where my claim is, then I'm going to call Heather back and say, What can you get me? And that's real. That's what's happening out there.
Speaker10: [01:06:46] So some of these Ertc mills offer refund anticipation loans in which in which they loan employers a certain percentage of their expected ertc refund and in the meantime charge them interest only payments. Would such a refund anticipation loan from an ertc mill increase the level of risk that an employer is exposed to?
Speaker6: [01:07:03] Well, sure, there's that. And then the other problem we keep saying and again, we've been we've been shoulder to shoulder with the IRS in warning our members and and make sure they warn their clients, like don't get in bed with these people. Because the other issue I think Roger alluded to it is where are these folks going to be in a year? So when you get audited. Yeah, where are they going to be? They're gone.
Speaker10: [01:07:23] Gone. They got got they got their money. Absolutely.
Speaker6: [01:07:25] A cardboard stand in the airport. They folded the tent and they went.
Speaker10: [01:07:29] I have a quick question. You had answered Miss Tenney's questions a little bit about some of the struggles that they're going through to file their taxes. But just as a follow up, when Commissioner Werfel was here before this committee, he claimed that the IRS would process oldest claims. First, Has the PEO industry and their clients seen the oldest claims processed first? No.
Speaker6: [01:07:48] We have 4000 claims from 2020 that we know about. There are probably more than that. That's just a sampling of our members. Less than half of our members that had 4000 claims from 2020. So no.
Speaker10: [01:08:02] What are they telling you? What are they telling you? What's the IRS telling you when you call?
Speaker6: [01:08:05] Not a lot.
Speaker10: [01:08:07] All right. Well, thank you very much. My time is expired. Who am I recognizing yet? Oh, Mr. Schneider is recognized for five minutes.
Speaker6: [01:08:17] Thank you so much. And thanks to the witnesses for.
Speaker13: [01:08:20] Sharing your stories. Obviously a lot here, and I appreciate you bringing your expertise to us. I appreciate the work you do. I'm the son of a CPA. I worked for him summers. I started my career at Pricewaterhouse on the consulting side, not the accounting or tax side, but I know what it was like. I worked for a local firm in Chicago. It was then Blackman Kallick. So I appreciate this. Mr. Gray. You put something in your written testimony that struck me, struck me to the core because you're saying you're hearing practitioners and my dad was a he worked with the firm, started out of college, became a partner. They sold out firm to a bigger firm. But then he left and started his own firm again. So I know I know what your firm is like and I know what your clients are like. You said there are practitioners giving up, saying they're done. If they're going to lose to these corrupt mills, why not join them? And I know there's bad actors in every industry, but every accountant I worked with, no, I was pretty confident that they were straight shooters and my dad raised me. I mean, if they overcharged me a penny on a check, I'm going to make sure that they knew it. But if they undercharged me a penny, I was going to make sure I paid it. Yes. And that's the accountant mindset. Can you go a little bit more about these people who are joining rather than fighting the mills?
Speaker5: [01:09:50] I would say that if we go back 3 or 4 months, I would have never thought you would hear that. But I think also part of the deal is by I think part of it is the complexity of the law. And so what happens is when you're trying to explain it to two people, you know, this party is not charged and all these great fees. But the thing about it, it's changed the definition of qualifying. And so partly the law itself is complex. And secondly, there is no guidance when you think about it. You go to irs.gov and it will lead you to frequently asked questions. And when you pop it up, it says these are historical. Where do I go for guidance? That's small business. Well, now what happens is I just I had a friend in Illinois that she just lost her largest client. And the problem is that here's a great big one. I see a lot of pushback on if I, as a CPA and you come to me and I've told you that you don't qualify and then you go to the mill and get the money, then I can't. And it just got issued in March by OPR, and.
Speaker13: [01:11:03] I'm sorry, I'm going to reclaim just because of time. But I think that's a key point in. Mr. Harris you kind of touched on this about how and I'm gonna put it back to us on this committee how can we find a way to help you and your franchisees in this case bring people back into compliance?
Speaker1: [01:11:20] Well, we need real world solutions. We have people who, to Larry's point, they they listen to us in the beginning until some very slick ad like we've seen here, gets them on the phone and all of a sudden they have a half million dollar refund that they're due, of which they only get 400,000. At least 100 goes to the person that did it. So they come to us and we can't amend the returns because we've been told we're not allowed to. And yet you want us to pay back 500? We've only got 400. We need to work together, our community with the IRS and Congress when necessary to to recognize that some small businesses have been trapped in a situation that all of us would have been tempted to be.
Speaker13: [01:12:03] I hear you and I appreciate that. And maybe I'll turn to Mr. Cleary. Two questions. The first one is, are your clients, because you're representing thousands of your members, represent thousands or tens of thousands of of companies, Are they applying multiple times for the RTC? Are they applying and waiting and then going to these mills? That's kind of the impression I have from what you're saying.
Speaker6: [01:12:24] Oh, that's a great question. No, I mean, it's either, you know, you choose your lane. So, I mean, either they throw in what their CEO, which they typically do and say, hey, can you help me get this right?
Speaker13: [01:12:36] But then they aren't because it's taken so long, they're not picking up the phone and talking to Heather or Deb and saying, I want to do it again. That's not what I hope not.
Speaker6: [01:12:43] I think look at these guys. And that would be really dangerous if you had both of them going at once because then you're going to end up.
Speaker13: [01:12:48] In and I'm short on time, so I'll just wrap up. You know, the RTC, as you guys have all noted, we were dealing with a wildfire. My my analogy. We were throwing blankets on that fire. We knew there were holes in them. But the ERT saved more than a million, 1.3 million jobs. And and we've grown the US GDP by $135 Billion. We have seen over the last months. It slowed and then helped us staunch that fire. So I think it was critical. Do we learn from it? Yes. Do we cut the backlog? Yes. Mr. Clare, you mentioned that the backlog is growing again is because people are applying again. And 500,000 is a big number. How many businesses, how many small businesses are in the United States?
Speaker6: [01:13:29] Well, more than that. But remember, the 500,000 includes, you know, hundreds of thousands that are counted as one.
Speaker13: [01:13:37] It's almost 32 million.
Speaker6: [01:13:39] But if you're one of those businesses.
Speaker13: [01:13:40] It's all everyone one.
Speaker6: [01:13:42] It's all the marbles.
Speaker13: [01:13:43] We need to cut it out and get it to starfish. And that's the goal. But I don't want to overstate the numbers. It is a significant number, but it is not the majority of businesses as might have been implied. I yield back.
Speaker3: [01:13:55] Thank you, Mr. Chairman.
Speaker14: [01:13:57] Just want to take a little different vein and a different approach. I'm here to try to figure out solutions, what we can do. I have 39 counties that I represent in Iowa, and they all are rural. They're all small Main Street businesses. And this was a great thing. The employee retention tax credit did exactly what it did sounded like. Right. It created payroll at a time when government was requiring businesses to shut down. So it was very critical. And I get it. I mean, when you roll something out so fast, you're trying to resolve something, you know, you're going to have a lack of clarity. You're going to have a struggle with eligibility and stuff like that. But think of how much time has gone past now since this has actually occurred. I mean, it's been, you know, almost 18 months to two years. And we still have businesses that have little guidance from the IRS, a little education on who qualifies and, you know, very little customer service, which all my small businesses are really struggling with. So my question is this, Mr. Gray, what can we do? Solution. You know, it seems like there's a lack of education or there's a lack of IRS guidance on the Irtc and obviously it's creating fraud related to fraud. Do you have any solutions? What we can do in this area?
Speaker5: [01:15:18] Excellent question. I'm glad you asked it. I'll try to be quick. Number one, like offshore accounts and they did with the cryptocurrency, send out some soft letters, send out. So if they right now would send a letter to everybody that's got the credit and everybody in the future and in this letter say you need to file the amended return the income tax return you here is the most common reasons like they just issued this memo council memo on the supply chain. That right there that letter yesterday changed to client. So communicate in this letter. These are the most common mistakes that are being made. Offer an amnesty program to where that if I non-for-profit yesterday in Atlanta the woman's a volunteer she signed it and she now realizes it's wrong. But now she doesn't have any guidance on how to give it back. Correct. So when people want to come forward and say, I made an honest mistake, I didn't know allow an avenue to do that on the 941 start today and say there's going to be accountability to whoever is assisting and doing that clerical work. Who are you? Sign it. What's your fee or how are you charging? But my point of it is, is that type of stuff is even bigger than the guidance. But and then finally, you know, IRS doesn't have a permanent chief counsel. And that's where I look at and taxpayer looks at to get guidance. So what do you expect? And that's why I said in my testimony, it starts at the top. Who is in charge to make that appointment and why it takes so long? I don't need to know the answer. Just get it done.
Speaker14: [01:17:03] No. And Mr. Gray, you're exactly right. I mean, frankly, it does start at the top and it starts with the IRS. It starts with putting the right people in place. Just like any business. Right. You have to answer and you have to have customer service. And this is not happening.
Speaker5: [01:17:17] Yeah, it may even go higher than that. Yes. Because who appoints the chief counsel?
Speaker14: [01:17:22] I get it. I hear what you're saying. Yes. Yes. And why isn't that happening? That's a.
Speaker5: [01:17:26] Great concern. It'll help. It'll help the IRS out. It'll help the taxpayer out, the small business out and our rural communities.
Speaker14: [01:17:34] That's correct. So I got another question. This is for Mr. Harris. Mr. Harris. So I have a situation a small business is a family owned business. All right. And they employed some of their family during this time. And we had multiple attempts by the owner, by our office to figure out if there was a if they qualified or not. And ultimately, the IRS cited Work opportunity tax credit, and this was the quote, conceptually designed to prevent family members from taking advantage of wage wage subsidies where there isn't a true employee relationship. But all these small businesses on Main Street, Iowa, Main Street, USA, they employ family. And this is my biggest problem. So so my question to you, Mr. Harris, is do family owned and operated businesses, how do they get some of these dollars and how can they provide documentation that that proves that they are not fraudulently collecting from for the IRC?
Speaker1: [01:18:35] Well, I want to say go to a mill because they don't care. But that's that's not the correct answer. It is a challenge. And we got guidance on that partly into it. So you had people who had already applied and then we found out that family members have this rule and now we're hearing that maybe they don't have this rule. This is another example of where we need clear, permanent guidance so that the people can rely on what they're doing, because honestly. And Larry can speak up. I don't think they qualify under the IRS rules today, but I don't know what it'll be tomorrow.
Speaker14: [01:19:12] But they just need clarity. They need clarity, bottom line, because then you don't file. They just need to know if.
Speaker5: [01:19:17] That's a hypothetical, they don't qualify.
Speaker14: [01:19:21] Thank you. And I yield back.
Speaker15: [01:19:26] Thank you, Mr. Chairman. And thanks to all of you for being with us today. Appreciate it. I first wanted to share a quote from a restaurant owner in my district about the impact of the irtc on his business during Covid. Parker Schollander, who owns a restaurant in Bellevue, stated that his business, quote, relied on the irtc to keep the lights on and our workers on payroll. While Irtc refunds took almost a year for many restaurant operators to receive, it was incredibly important to help sustain operators during mandatory shutdown orders and pandemic related challenges. End quote. So while the Irtc provided many small businesses with necessary resources to keep their businesses running and employees on payroll throughout the pandemic, we know that many experienced significant delays and attempts to defraud them, as has been discussed. This is a clear example of why we need to make sure that the IRS also has the resources to effectively combat potential fraud and abuse and ensure timely processes of refunds. They can't do it if they don't have people and resources. I wanted to start with you, Mr. Harris. In your experience, can you describe how fraudulent applications impact small businesses that unknowingly worked with Irtc? Mills.
Speaker1: [01:20:49] Well, it's it will eventually. If they are subject to an audit, it could ruin them because by the time the IRS comes in and makes the determination that they weren't qualified, this huge sum of money that's probably being infused back into the business is no longer sitting in the checking account. And yet the solution is you have to pay that back and most likely with penalties and interest. So, I mean, it could it could the joy of getting the money could very quickly be replaced with the terrifying reality that because you weren't eligible, you could be put out of business because of the amount of money you now owe. Back to the to the federal government.
Speaker5: [01:21:31] If I might add to that, that example of that non-for-profit person yesterday, realizing she had been, you know, hooked crook or whatever, and she wants to pay it back. Don't let that interest and penalty run have that amnesty. Have a process of how to come clean. The other thing, if she had got that if at the time it was filed, if she had had to provide documentation on qualifying on that 941 X, maybe the money would have never went out and saved that business.
Speaker15: [01:22:02] Thank you. Thank you. Thank you. Miss Zippo, can you describe how additional resources for Irtc education and outreach would have helped nonprofits and small businesses that were seeking relief?
Speaker7: [01:22:16] Sure. I mean, the first thing is they be aware of the program. Secondly, we still hear from nonprofits that think that because they got PGP, they're not eligible for the Irtc. Of course, that was the case at the beginning, but then it was changed better, more clarity with respect to what those eligibility requirements are, what it means to have reduction in gross receipts, all of that. The more information they have at the outset, that's clear, then they they're more equipped to provide to apply and get the relief that they need sooner. There's no question that education is absolutely key to this process, and it will help to stave off all of the bad actors that we've been talking about.
Speaker15: [01:22:56] And just follow up to that, Does the IRS focus on increased Irtc auditing disproportionately impacts some businesses like disadvantaged or minority owned small businesses?
Speaker7: [01:23:09] It could. I mean, part of the issue is there are some organizations that because of the complexity, are were perhaps shut out of the process or less inclined to apply because they didn't have the resources to hire a reputable accountant or they just didn't have the bandwidth to look into the complexity of the rules. So, you know, having and of course the fear of an IRS audit or there are certain organizations that that may deal with constituencies that may be a little bit more reluctant to apply. So, you know, again, it goes back to making sure that there's good education and that the program is structured so that maximum access is allowed for organizations at the grassroots, at the rural level, organizations serving marginalized constituencies and a lot of other folks that might be shut out.
Speaker15: [01:24:03] Thank you. Thank you, Mr. Chairman. I yield back.
Speaker16: [01:24:07] Thank you, Mr. Chairman. I want to thank the chairman for holding this hearing. The volume of casework that my office has received on Irtc issues since January alone has been mind boggling. The inquiries my office submitted were on behalf of a whole host of. Range of organizations, including veterans organizations, small businesses, senior homes, just to name a few. And one of my constituents was owed almost $300,000 and needed it immediately in order to keep their business doors open. Another constituent had difficulty getting the IRS to even confirm that they had received their application. Lastly, my office received. This is one instance, a complaint from a constituent who had applied for IRC for the years 2020 and 2021, but never even received the credit until the end of 2022. Most small businesses do not have the luxury of time when it comes to these issues. As you all know, the RTC touches just about every sector of our businesses and our local economies, and there are dozens more stories like the ones I just referenced in districts across America. Our small business owners deserve better. That is better customer care and better service from the IRS. I'll start just with you, Mr. Gray. If you could describe specific to your experiences in communicating with the IRS over IRC claims.
Speaker5: [01:25:35] In communicating with them. I have, like Roger, an unusual opportunity as a small practitioner that I get to come to DC and it was virtual. The communication. It's open. We communicate through the National Public liaison. I work with local liaisons. You can work with the taxpayer advocate. I think one of the things that's missed by the small preparer and the small communities is that the taxpayer advocate actually will assist the tax professional, but they're being overrun with requests. So I think, one, there was not enough communication, there was not enough guidance. There was no you know, some of us at the table has been asking for what we call the soft letter to get to get out there for a couple of years. Faqs is communication. They're not being updated. A real quick example, the there was a memo from counsel on on the supply chain. I used that yesterday to convert a person that was going to get $1 million. That one communication stopped $1 million going out. That, as Roger referred to, when the IRS would show up for an audit, could put them out of business. But more communications, more channels, more outreach. But until they get guidance, until the IRS communications liaisons, till they get guidance, they can't put it out. So if it doesn't exist, there's no communication, no matter how many times we have conversation.
Speaker16: [01:27:09] And I'll leave it to the rest of you on the panel. Any feedback you have for us regarding specifically what the IRS can be doing differently when it comes to their irtc challenges in terms of the structure of the IRS, the manpower at the IRS, the resource allocation.
Speaker6: [01:27:29] Did the big thing. And you hear it a lot today. And I'm sorry Miss DelBene left. I was going to volunteer her. Given her technology background. They need technology. I mean, we we mail stuff, our members mail stuff, and they fax stuff. And when we come talk to your young staff about the problems we have, we have to tell them what a fax machine is first and then go from there. So they are using fax machines and mail and not email. I mean, that that's just the first shot out of the box, I think, to improve technology.
Speaker1: [01:28:04] And I would agree with that, that as Larry mentioned, we are fortunate at our level that we can have one on one discussions with people here in Washington. But it's I think it's impossible for a small business owner to pick up the phone and call the IRS and find the status of their claim because it wasn't a priority. We have to we have to put technology in place and understand that when people send things in, they expect them to be logged somewhere and a status report being available. So technology is a huge part of what the IRS needs to embrace and use it to improve customer service, not just their own ability to do certain things better.
Speaker7: [01:28:46] I would also just add that people power matters too. Certainly the IRS has an exempt organization office that when in some cases when it had been better staffed was a godsend to just be able to help talk to a human being, ask questions about guidance. And in this particular circumstance, when you have such a complex web of rules and regulations, having somebody to talk to about your own situation, the FAQs, absolutely. But having a human being also helps, too.
Speaker16: [01:29:18] Okay. My time is expired, but I want to thank you all for your time today. Thanks for being here. Thank you. Miss you back.
Speaker17: [01:29:24] Thank you so much, Mr. Chairman. And I just want to thank this panel for the master class. And, you know, I forgot who said it, but when you spend this much money in the middle of a pandemic and you have to push the money out very fastly fast, the fraud, the fraudsters just show up. They're just there. And so and I also appreciate the fact that you talked about I mean, the IRS was also one of the agencies where people weren't at work. I mean, people were sending in mail to empty desks. But that being said, I just can't resist mentioning that the request for $80 million to add to the IRS, this is just this is a perfect reason why we ought to do it, because the the employee retention credit is not the only kind of fraud we have to deal with with the IRS. We also have to deal with the fraud of people who know that their tax returns are so complicated and so complex that they can't be caught and won't be audited because we don't have those resources, notwithstanding the fact, as you mentioned, you know, the technology I mean, I have been on the phone with the IRS, you know, and able to cook an entire chicken dinner meal while I wait on the phone.
Speaker17: [01:30:46] I am happy to to to to know that the IRS is they seem more than 2.5 million claims since the program was enacted and that they have caught up with the backlog as of the week ending July 24th. And more than 99% of the cases that are current, meaning that they're three months old or less and they're seeing 70 doing 70,000 claims each week. I did meet some of the mills. They came right into my office this week. And I you know, I shared with them that I was unhappy, you know, that they were in operation. And so I think they left my office willingly. I just want to say, while I have the mic, that it is heartbreaking to know that we're still working to get people their money, many small businesses, and to think about how eager we were to claw back money in health care and money that children needed and the rescissions that we made. And we did not even think twice about lending more time to those programs. So I'm happy to know that there are 500 IRC trained examiners and auditors and so we're looking forward to them catching up. I would like to yield time to my CPA's son and that is child abuse by the way me work and.
Speaker13: [01:32:19] I will tell stories. Let me just ask real quick questions because I think as we're wrapping up, raise your hand if you think more effective. Giants by the IRS would lead to less fraud. Okay, everyone, just to make it easy. Everyone raise their hand. Raise your hand. And I think we've heard this today. If we had greater capacity to process returns at the IRS, that would be a good thing. Everyone agrees that's unanimity. And capacity is really a function of having people with training and technology tools so that we should be investing in our people and our technology. Raise your hands if you think that's a good idea. So this is a setup. Does anyone want to raise your hands to say it's a good idea that we take money away from the IRS? I don't see any hands raised. I think the point being is we in the last Congress made sure that the IRS was getting the funds to begin the process of bringing on more people with the skills to do their work more efficiently and give them the technology tools to do so. I hope that we can take from this hearing the lessons that it's time for us to work together, Republicans and Democrats, to make sure that the IRS is serving the American people, giving them the guidance and information they need to file timely, giving their advisors like you in this panel the information you need to give the advice to your clients to file timely and having the technology in place that we can process those returns, get the refunds to our citizens and make sure that we have the best, most efficient, most capable IRS possible. I yield back.
Speaker6: [01:33:54] Mr. Schneider. If I may, after that setup, because it was brilliant. It really, really was good. Is that, you know, I spent ten years in the federal government and the executive branch, and nobody ever has enough resources, ever. And so you have to triage. You have to and you have to prioritize. In this case, again, when the commissioner put a surge staffing on this, the numbers started going down. So our only our request today is keep that surge in place until that number is zero.
Speaker13: [01:34:22] I will share that with the commissioner because I agree with you.
Speaker2: [01:34:24] Now you yield to Ms.. Moore. Ms..
Speaker13: [01:34:26] Moore. I yield to Ms.. Moore. Thank you.
Speaker17: [01:34:29] And I have to yield back. I did know that.
Speaker2: [01:34:33] I just and thank you for you've actually tolerated a couple of our hearings today, and I really appreciate you.
Speaker17: [01:34:40] I am so hot, so tired. I'm. If I could make it August 1st.
Speaker2: [01:34:45] I'm just upset you'd never invited any of us to your chicken dinner. You invited me. Just.
Speaker4: [01:34:51] Just hook up.
Speaker17: [01:34:52] With one of my grandkids. They'll get you there.
Speaker2: [01:34:55] All right, panel, a handful of things I want to get my head around. And there's actually a reason I waited till the end. Because I have. First off, I have one thing here. It says, The IRS considers six months within the window of still being timely. I had someone say three months. Do any of you know what the IRS is running definition of something that's still timely? Nope. And that may go back to Mr. Gray's comments of some of the things we just desperately are hungry for information.
Speaker5: [01:35:33] Right. And the other thing to think about as we move technology, as the IRS moves through better technology. The other thing is the IRS. A lot of times has got to think non-paper, because a lot of times they will take a new technology, but they keep the old process. And sometimes that's not the most efficient.
Speaker2: [01:35:56] That is fair. But look, I have no idea what's beeping over there. Look, there's a number of us, and since my time on the Ways and Means Committee, we're trying to get the IRS off of its own servers, off of its own storage. If the Department of Defense can use an encrypted world out there, the IRS can, too. I will give them one credit. This is not a non sequitur. They actually did a small experiment with a ChatGPT type model of call ins, and it worked. And there's a model actually here of instead of an army of human beings to actually be picking up the phone, sometimes you need someone who will stay on the phone with you for 45 minutes to help you fill out the phone or to fill out the forms. Turns out that they had a really good, positive experience with that limited experiment. And so for many of us, the constant debate here is, is sometimes it's what is resources? Is it the next generation of technology to do it better, faster and to mine data to find bad actors? Or is it an army of people that functionally become very expensive? When I have to figure out how to finance the pensions and the health care and those other things, it's just the reality of my world. But but there's a handful of things I really want to get my head around. Okay. Right now, let's actually say how many what what is your estimate of how many of these claims are still to be processed? What's from your expertizes? What's out there?
Speaker6: [01:37:29] Well, the IRS would say about 500,000. But but again, remember, 250 that are peo claims represent probably I mean, I wouldn't even guess, but tens or maybe 100,000 additional claims. Okay.
Speaker2: [01:37:44] So 500 plus 100.
Speaker6: [01:37:46] Yeah. Ballpark. That would be good.
Speaker2: [01:37:47] Okay. So 600. Gentlemen, would you all agree there may be 600,000 out there?
Speaker1: [01:37:51] I think that probably is the right number. The commissioner in his meeting in Atlanta, I can't remember what day before yesterday, day before yesterday, also said that typically when programs like this are created, that you see this arcing down of claims and yet they're not seeing that and they're attributing that to the mill. So I think the the wild card in this is how much of this fraudulent activity is is causing these numbers to stay inflated when naturally these programs at this point in time would have been declining?
Speaker2: [01:38:22] Gentlemen, if there was a technology, what could we do? I've heard the discussion of of grabbing one of the proper forms and requiring that some gross receipts on part of the app. What would be the fastest way to quickly shut down the bad actors?
Speaker5: [01:38:42] First doing an amnesty because there's people out there wanting to pay it back. But here's what happened. We're going to.
Speaker2: [01:38:48] Get we're going to get to the amnesty. Okay.
Speaker5: [01:38:49] Well, in the deal, I'll make a deal with that tax, that tax, that small business to say help us find more of them, because you in this, you're going to get a lot more bang for your buck if you can get some cooperation from the little so they can start finding the bad actors and have a way to take action against them because there's a due process and the bad actors are going to lawyer up and it could be ten years from now.
Speaker2: [01:39:14] Well, that's sort of the second part. But Mr. Harris, if I had to stop for those folks who are getting solicited today who have not filed, what could the IRS do almost immediately in rules requests and RFQs, those sorts of things to stop bad actors.
Speaker1: [01:39:34] They're obviously losing the PR battle in the marketplace. That's hard for them to win. You know, they don't turn to IRS small businesses first for information. I think you're going to have to empower the community that Larry and I work in. That's where the businesses are coming to when they're getting solicited. And it's hard to say this, but enforcement is ultimately what slows down the cheaters, the fear of getting caught. And right now, there's not a great fear that I think the system is being overwhelmed by the bad actors to the point that everybody thinks they can take a chance because the chances of getting caught are nothing and that that has to be changed somehow.
Speaker5: [01:40:17] Right now, it's a business decision, not a compliance decision.
Speaker6: [01:40:22] Yeah, I agree with that. And again, it seems oversimplistic, but if you clear out the backlog, the mills are going to dry up.
Speaker7: [01:40:28] And then there's also the issue of penalties, just making sure that there are right now, there's not a lot of disincentive for the scam artists that are out there. So upping the penalties, I don't know. I'm not an attorney, so I don't know if it's possible to put guardrails around the payment structures, the the exorbitant loans, the exorbitant contingent fees, all of that. So those are just some of the things that I would add to the mix.
Speaker2: [01:40:53] It's interesting because as we were having a discussion here, Mr. Pascrell and I were actually trying to discuss saying, oh, heaven, we now may actually have how many thousands, tens of thousands of small businesses that answered that call are and now all of a sudden realize they've gotten a check either dramatically more than they should have or shouldn't have gotten one at all. They don't actually qualify. How do you unwind it? And okay, so let's say you do an amnesty. We do a policy set saying here's our amnesty is an amnesty where you credit back the contingency fee they paid or if they prepaid, as we've had some folks contact our office saying, hey, I'm being asked to prepay a retainer fee. Any brilliant ideas on how you would unwind the number of small businesses out there that have functionally been scammed? But it's also the American taxpayers who've been scammed. Right.
Speaker1: [01:42:00] We've all I think you do have to recognize and the service has said they're recognizing the fact that a large percentage of the money they did not receive. So we have to come up with some way of acknowledging that money you didn't receive is either paid back later, not paid back at all. I think also you have to make this amnesty, have a very firm deadline to create an urgency to come forward and know that if you don't come forward by a certain date, you lose this benefit to to flush out the what's in the system, if you will, by creating an urgency to deal with it. But you have to deal with the fact that they gave up 20 to 25% of that money and never saw it.
Speaker5: [01:42:47] And also, I think it's one of those look back lesson learned. I worked 20 years ago on a project for voluntary compliance to switch from for small business. I should be paying wages, but I'm not. Well, what they did the amnesty there was they said if we get there, if you come and volunteer and you've been doing 1099, you can flip over to W-2 wages. And they literally almost forgot most of that money. But the point is, first look at lessons learned processes. When there was the offshore stuff, there was there was a way to come forward, but it was through the soft letters. So again, I go back to if part, you could actually look at paying this out faster as long as you had more of a you're, you're getting the money, but you're also agreeing to this additional compliance. Okay.
Speaker2: [01:43:39] So if we were to do immediately. Off the top of our heads, our checklists. We need a whole bunch more rules. Checklist. You could go on the website and say, look, here's your compliance rules. Request that when filing for your forms, that there's some tags on that that actually have it would be a great one.
Speaker5: [01:43:58] Documentation. A lot of these mills are providing no documentation. And so if if I'm the mill and this is my small business person that participates, if you send him a letter saying, do you have the following documentation? Is going to go? No. Well, if you don't believe you do, don't call the IRS. Go to a trusted tax preparer. Because then there's opportunity, because there's a lot of people that's been innocently getting this. I don't think the taxpayer, the small business themself is not for the most part, they're the innocent ones.
Speaker2: [01:44:38] We obviously have the concern of rewarding the bad actors. Also, electronic portal know the form is electronic. You put it in, it can immediately see it because it makes it dramatically easier to track.
Speaker5: [01:44:51] Yeah. And see, right now the IRS has started the online taxpayer account, but they haven't they haven't really stood up the the online business account. So there's where if technology was set there, then any communication that would help free up human resources because they could be pushing this, you know, where is this We've received your application. We have questions on the application that could be pushed electronically and tracked instead of, again, having these paper files.
Speaker2: [01:45:24] All right. What else would you add to the checklist?
Speaker6: [01:45:26] I mean, to me, all roads lead to technology, right?
Speaker5: [01:45:30] Yeah, but but the documentation. The documentation, the one yesterday, the lady said they didn't give me any documentation. So if I have no documentation, that's the first that's that's the first indicator. If you've had to pay 15 to 30%, that's another indicator. So so I think, again, the communication, which they already have systems set up to do that, that communication to everybody that got one of these credits both in the past and in the future, but in the future, to clip it off and stop it is to say sin certain, you know, have a checklist. Do you have this kind of documentation? Here's what we're going to be looking for in an audit. And the fear of the audit will have more impact than the audit because the IRS does not have the resources to audit out of this.
Speaker2: [01:46:18] Some of this there are some mechanisms to do the audit electronically or through data mining. But yes, but you're absolutely correct. And I fear, you know, I despise the concept of the fraudsters get away with this. And the small businesses actually end up in the position of being punished.
Speaker5: [01:46:41] One of when I was doing these YouTubes and shopping the market, so to speak, to find out the bottom line was one of them said, well, IRS is not auditing. Is your income under 400,000. You know where they're going? I'm getting a double free pass.
Speaker2: [01:47:02] This is getting.
Speaker5: [01:47:03] This is much bigger than the issue on the table today. Downstream compliance. There's going to be so many, you know, what about the income tax amended return right now with the what OPR issued in March? I as a CPA, if I first have to determine if Roger went to somebody else to do the 941 X, Roger says, I like for you to do my return and I either don't understand the rules or I've advised him not to do it. I cannot help to get up to a third of that money back in the Treasury from the income tax adjustment. So I'm now saying I'm best client. One of my I referred to earlier in Southern Illinois. It was the fact that she lost her best client because she said they didn't. So there is more to this than just the credit. It's impacting downstream compliance for years to come.
Speaker2: [01:48:03] Okay. I'm going to do something a little awkward because I still have 1 or 2 more things I want to touch on. But Miss Malliotakis was kind enough to come back and spend some time with us. Your five minutes.
Speaker18: [01:48:15] I feel like I'm seeing you too much today. Yes, I get that.
Speaker2: [01:48:18] I get that a lot from my spouse.
Speaker18: [01:48:19] A lot of a lot of hearings today. Well, thank you. Thank you all for coming today. And I appreciate and have the opportunity to read the testimony. While the Irtc is intent to support these struggling businesses during what was a challenging time is commendable. The lack of sufficient guidance and regular updates from the IRS has led to uncertainty and vulnerability for small businesses to be exploited by fraudsters and predatory practices of scammers. And I know that you've touched on this. Lack of clarity in the IRS guidance has led to confusion and left many small businesses in the dark. They're unsure of how to properly assess their eligibility or navigate the complexities of claiming the credit, lack of communication and status updates from the IRS adds another layer of uncertainty for small businesses. Businesses are relying on outdated information leading to inadvertent errors in their claims or even missed opportunities to access the support that they desperately need. The absence of a clear procedure to correct unintentionally inaccurate claims exacerbates the situation. Small business owners who make genuine mistakes in their irtc claims face the risk of penalties and additional burdensome paperwork. And this discourages some of our entrepreneurs from even attempting to claim the credit, fearful of potential repercussions of unintended errors. Regrettably, the combination of insufficient guidance, lack of updates and unclear procedures has created an environment ripe for fraudsters to exploit these vulnerable small businesses and as a legitimate business struggles to understand the intricacies of the credit. Bad actors may take advantage of the confusion leading to false claims, misuse of funds and fraudulent activities.
Speaker18: [01:50:04] This not only diverts critical resources away from those who genuinely need them, but also undermines the integrity of the Irtc program as a whole. In light of these changes, the IRS must take immediate action to address these issues, providing clearer, more comprehensive guidance on Irtc eligibility and claim procedures as well as regular updates are imperative to ensure that small businesses can access the support that they deserve and that they are warned that there are these fraudsters out there. Equally as important is is the establishment of a transparent and efficient process for correcting unintentionally inaccurate claims. The erc's effectiveness is eight and aiding businesses that struggled through the pandemic depends on the IRS's commitment to providing sufficient guidance and regular updates. Without addressing these issues promptly, we risk perpetuating uncertainty and leaving these small businesses vulnerable to to the exploitation by fraudsters. So I'll start with Mr. Gray. I'm extremely concerned about the small businesses in my district that were misadvised by aggressive I.R.S. promoters and improperly claimed the credit. It seems like those businesses may get hit with a double financial whammy. The business is going to have to pay the IRS back on the proper claims. And then second, those businesses may not be able to recoup the fee, which was probably substantial, that they paid to the I.R.S. promoter. Can professional tax practitioners like CPAs help businesses now that unintentionally claimed an unsubstantiated I.R.S. or is it too late? What would you advise?
Speaker19: [01:51:44] Well.
Speaker5: [01:51:45] First thing is what I just referred to a couple of minutes ago. This notice from the Office of Professional Responsibility. I have to comply with that. The fraudster doesn't have to. And in that statement, it says that if I assist in income, employment or excise tax. In order to assist, I have to be knowledgeable of the IRC and IRC as is a payroll question and a lot of practitioners, especially small practitioners, may not do payroll tax, so they're not aware of the rules, but yet they're coming forward and saying I need help with the 1040 tax return based on that rule. If I follow the guidance, my answer is I can't help you. And that's a sad day because I ethically threw my standards through AICPA. My standards are that I'm to help get people right. So if somebody comes because what is it, Roger? And it says, if we do that, we might be perpetuating the claim if we're helping to put money back in the Treasury. The other thing would be to be able to get the guidance in April, I think it was that they had within the IRS an audit and CI. They were going to get a team together and do something. Roger, have you heard back from that?
Speaker1: [01:53:04] Not yet.
Speaker5: [01:53:05] Me neither. So back to how many months? We continuously ask at the table. Let us include us. Not in the communication out, but work will work with you. And working on the project to help solve the problem systemically. So I think letting practitioner groups, associations, payroll income tax, all the organizations we've offered to help. Please take our offer because then we can work to answer your question much better. Yeah.
Speaker18: [01:53:42] Just one more question. If the chairman allows now that he's busy, let me ask. The IRS is going to find clear instances of fraud, but also probably going to find cases where well-intentioned business or nonprofit was misled by by an IRC credit mill into taking a larger credit than they were eligible for, or cases where the IRC mill has produced a large volumes through baseless though baseless report on why a small business or nonprofit qualified for the IRC. How at all do you anticipate the IRS will distinguish these different cases? Do you think the IRS has resources to be able to distinguish between clear cases of fraud and cases that aren't so clear? I guess your last answer kind of said that they couldn't get you this information. It's been months. I imagine that will be Roger. I'll follow you.
Speaker1: [01:54:31] They're not going to be perfect in it because it's one of these facts and circumstances cases. They do that somewhat routinely in terms of allowing deductions, charging fraud versus things, but it's not going to be perfect. I think what we have to ensure is that if a taxpayer, a small business owner, believes that they have been found improperly, that they have the proper process for appealing that, because it's going to be left up to a facts and circumstance and an individual case.
Speaker5: [01:54:59] And that's why there has to be a due process so that because if that taxpayer on the first contact has no representation like myself, then they should be able to have, hey, can we appeal this or can I talk to a manager? That process is in place on examination. But again, I think the sooner there is inclusion of practitioner groups more involved in setting up the way to go, see if we could go back three and a half years. Normally you would have seen an IRC implementation implementation team. And the reason why that didn't happen because the pandemic was going on, they were working at home, so it wasn't like they had all the resources. But it's not. It's never too late, as the chairman said, to snip it. And we're here to work with the IRS to snip it.
Speaker2: [01:55:52] Thank you, Mr. Malliotakis. And as being someone who's about to run to the airplane.
Speaker5: [01:55:58] Don't get in front of me.
Speaker2: [01:56:00] Thank you for being here today. I am going to request something from all of you and anyone that's out there listening. This is something we're going to have to try to persuade the IRS to and with our whether through memos or whether we need a solution. You brought something to us that I'm not sure I was completely mentally prepared is how do we unwind, Right. The charities, the small businesses that function have been scammed.
Speaker5: [01:56:30] And again, I'm going to say we have an we have an opportunity. We got a new commissioner. There's no blame.
Speaker2: [01:56:35] But the scale of it is is my great concern is I don't know if I had enough practitioners to actually unwind the scale that so so some of this may be guidance. How do I use technology? How do I automate, how do I do it quickly and how do I stop the hemorrhaging? So that's where I'm at. So please send us ideas. And the last thing they always have me read is please be advised that members have two weeks to submit written questions to be answered later in writing. Those questions and your answers will be made part of the formal hearing record. And with that, please send us your ideas and thank you for staff. You've been very patient and helping put this together and everything's appreciated. And with that, thank you for the run to the airport.
Speaker19: [01:57:24] Thank you. Thank you.
Speaker18: [01:57:25] I got to go to CHC.
Speaker1: [01:57:27] Hey everybody. Thanks for listening. Hope you enjoyed the hearing. Hope you'll join us for a future Federal Talks Tax Update podcast. This is Roger Harris. Talk to you soon. Bye.